Toyota overhauls domestic units to save Japan manufacturing

Tokyo: Toyota Motor Corp announced a $1.3 billion overhaul of its manufacturing in northeastern Japan, including the purchase of two listed units, in an attempt to boost efficiency and soften the blow from a yen trading near a record high.

The world’s biggest automaker said on Wednesday it would use share swaps to turn Toyota Auto Body and Kanto Auto Works into wholly owned units and expects to delist their shares on 28 December.

It will also discuss the integration of Kanto Auto with two other units in northeastern Japan, Central Motor and Toyota Motor Tohoku.

“Through these measures, we hope to give each company a bigger role and responsibility all the way from development to production of certain vehicle types,” Toyota’s president, Akio Toyoda, said at a news conference in Nagoya, monitored from Toyota’s Tokyo office.

“There’s no doubt that producing in Japan will remain extremely difficult as long as the conditions don’t change and that’s why we have been appealing to the government to help level the playing field against foreign competitors.

“But we will do whatever we can on our own, too, because we don’t want to give up on Japanese monozukuri,” he said, referring to the tradition of manufacturing in Japan.

Toyota currently owns 50.4% of Kanto Auto and 56.3% of Toyota Auto Body. The purchase of the remaining stakes would amount to about ¥104.8 billion ($1.3 billion) based on current share prices.

Toyota plans to build 3.03 million vehicles in Japan this year, equivalent to about 40% of its total global production.

That makes it more exposed to yen levels than rivals Nissan Motor Co and Honda Motor Co, which build about a quarter of their cars in Japan.

Toyota has forecast a 35% drop in earnings this year as the strong yen makes exports from Japan unprofitable.

The yen hit a four-month high against many currencies in Asian trade on Wednesday. It rose as high as 78.48 per dollar, heading back in the direction of the March record high of 76.25.

Toyoda said in May he wanted to keep production in Japan. But the strong yen, a dearth of free-trade deals and the risk of power shortages stemming from the 11 March earthquake and tsunami made it difficult to justify the 3-million-vehicle commitment.

“For investors like me, who see importance of manufacturing staying in Japan, it is positive,” Kazutaka Oshima, president of Rakuten Investment Management, said on Wednesday. “But for those investors who pursue purely short-term profit growth, it could be perceived as negative.”

Competition in the global auto industry has intensified particularly with the rapid rise of Hyundai Motor, which has benefited from South Korea’s aggressive pursuit of free trade agreements and a weak won.

Hyundai has made no secret of its strategy of learning from Toyota’s past success and is now the world’s fifth-biggest auto group with affiliate Kia Motors, attracting buyers with cheaper, but high-quality cars.

Toyota is looking to close the price gap with Hyundai and analysts say its disproportionately heavy exposure to Japan is holding it back.

Toyota’s executive vice president, Atsushi Niimi, in charge of manufacturing, said Toyota planned to protect all full-time jobs at the subsidiaries after the changes.

Shares of Toyota ended up 0.3% at ¥3,365, in line with the benchmark Nikkei average.

Toyota made the announcement after the stock market had closed. But an earlier Nikkei report on the structural changes pushed shares of Kanto Auto up 2.2% before the Tokyo Stock Exchange suspended trade in the stock. Toyota Auto Body closed up 2.7%.

Over the past few years, Toyota has been working to set up a third Japanese production base in the northeast region to complement the manufacturing hubs in the central Tokai region and the southern island of Kyushu and avoid the risk of an earthquake hitting one of those regions.

Central Motor had just moved its factory to a location near the northeastern city of Sendai months before being damaged by the 11 March earthquake.

Toyoda said that after the reshuffle, Toyota wants each region’s manufacturing units to have more autonomy over the development and production of certain vehicle types.

Toyota Kyushu will be largely responsible for the premium Lexus models, while the merged unit in the Tohoku northeast region would be in charge of compact cars.